Demographic factors, an improving economy and a sunnier jobs picture are expected to support the multifamily sector throughout 2021, according to market observers at Fannie Mae.
“Rent growth was phenomenal in the second quarter,” says Kim Betancourt, senior director of economics and multifamily research at Fannie Mae. “The outlook for multifamily is expected to improve for the rest of 2021.”
The upbeat forecast is based on expectations that the coronavirus will be contained this year and a strong economy will bolster the job growth and support wage gains.
“We are now going from the recovery phase into the expansion phase. We think that by 2022 we will be back to where we were prior to the pandemic,” says Mark Palim, deputy chief economist and vice president at Fannie Mae. “This year, gross domestic product growth is expected to be 7 percent…Normally we would be pleased to get 2 percent.”
Meanwhile, apartment rents are likely to grow more than 5 percent in 2021. That includes a gain of 3.0 percent in the second quarter, with another increase of about 2 percent anticipated for the third quarter, according to Fannie Mae.
Eviction Moratoriums Will Eventually End
During the pandemic, housing experts worried that millions of renter households could be evicted from their homes. That seems less and less likely as the U.S. economy recovers, says Betancourt, even though 7 million (out of 44 million) renter households were behind in their payments for rental houses or apartments, according to recent Household Pulse data from the U.S. Census.
Economists Watch for Inflation
Fannie Mae’s economists also warned that concerns about inflation could spur the U.S. central bank to raise interest rates. “Inflation is a really key question that is obviously at the top of everyone's mind at the moment,” says Palim.
Fannie Mae economists expect the consumer price index to increase by 5 percent in 2021 and slow down to about 3 percent in 2022, according to Fannie Mae.
“There is a risk that if businesses get used to the idea that they can raise prices and they feel that they need to raise wages to attract workers. Then you could start to get into a wage-price cycle,” says Palim. But, he noted, “We are not there. That is not yet in the data.”
With vaccination rates stagnating and a new Delta variant of COVID-19 picking up steam, economists are keeping a close eye on what the continued recovery looks like for both renters and multifamily property owners.